Enterasys retrial delayed until October

Published: June 3, 2008

The former Enterasys Networks executive whose securities fraud retrial was scheduled to begin today -- nearly 16 months after jurors failed to convict him in his first trial – will have to wait until Oct. 7 before he sees the inside of a federal courtroom..

Jerry Shanahan, the former chief operating officer of Enterasys, is an Irish citizen now living in Cork. He was first tried in 2006, along with four other former executives, charged with conspiring to inflate revenue in 2001, when the Rochester-based Cabletron Systems spun off Enterasys.

Late last month, U.S. District Judge Steven J. McAuliffe announced the new October trial date as a compromise between the defense team, which argued for a December start, and prosecutors, who argued for the week after Labor Day.

While the other four former executives were convicted and sentenced to serve federal prison terms ranging from 3 to 11-1/2 years, the jury nearly acquitted Shanahan of all charges. It was only thanks to a lone holdout that the jury was unable to reach a decision on one count.

After prosecutors delayed deciding whether to retry Shanahan, the court threw out the case for violation of the federal Speedy Trial Act. But it left the door open for prosecutors to re-indict Shanahan, and they did last October, on basically the same charges.

Key to the charges was a side e-mail that Shanahan sent to Enterasys distributor Tech Data Canada. The e-mail reinstated terms that would have precluded revenue recognition and had been taken out of the main contract, allowing Tech Data to return products that it couldn’t sell in 90 days.

Shanahan’s attorneys argued that the new trial amounts to double jeopardy, because jury members who acquitted him on the Tech Data count must have concluded that prosecutors could not prove criminal intent to conspire to raise revenue. And without that criminal intent, it would be impossible to prove other charges against Shanahan. Therefore, they argue, all should be thrown out for good, since it is both unfair and unlawful for Shanahan to have to defend himself twice against the same charges of criminal intent.

Shanahan also is facing civil securities fraud charges brought by the U.S. Securities and Exchange Commission on broader charges involving 10 defendants, including former Cabletron chief executive Piyush Patel. The court dismissed charges against Patel (and partially dismissed those against two other Cabletron executives), but allowed the SEC to amend its complaint against them.

The SEC said it would do so by the end of this month. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

This article appears in the May 23 2008 issue of New Hampshire Business Review